Tariffs and Economic Conditions - The U.S. government imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports in March 2018, which could affect the pricing of steel products[27]. - Changes in global economic conditions, such as consumer spending and employment rates, could adversely affect the demand for the company's products[31]. - The Chinese government's macro-control policies may impact demand for the company's products, particularly in the steel industry, which could adversely affect operations and financial conditions[89]. - Uncertainty in China's economic growth could lead to decreased demand for the company's products, negatively affecting sales and financial conditions[90]. - The ongoing geopolitical tensions, including the conflicts in Ukraine and the Middle East, could adversely affect global financial markets and the company's operations[32]. Customer and Revenue Information - The company had two major customers for the fiscal year ended September 30, 2024, while there were no major customers for the fiscal years ended September 30, 2023, and 2022[40]. - For the fiscal year ended September 30, 2024, total revenue was $74,270,429, a decrease of 11.9% from $84,332,300 in 2023[182]. - Steel piping products accounted for 99.1% of total revenue in 2024, with sales amounting to $73,635,012[182]. - The top geographic market was China, generating $60,079,920, which is 80.89% of total sales in 2024[183]. - Two customers accounted for 10.23% and 10.15% of total revenue for the year ended September 30, 2024, with amounts due from these customers being $5,532,011 and $3,596,848, representing 3.84% and 2.50% of total accounts receivable, respectively[210]. Supply Chain and Operational Risks - The company faces risks related to supply chain disruptions, which could impact its ability to produce and deliver products[45]. - The company has a significant reliance on a few suppliers, with three suppliers accounting for 31.45%, 13.77%, and 10.39% of total raw material purchases in 2024[197]. - The company must maintain appropriate inventory levels to meet market demand, with risks of excess inventory leading to increased holding costs and potential write-downs[82]. - The company is dependent on the continued efforts of senior management, and any disruption could severely impact business operations[53]. Financial Position and Capital Requirements - The company requires substantial additional funding in the future to meet capital requirements for product development and operations[47]. - The company may face working capital shortages for purchasing materials, developing new products, and hiring additional employees[51]. - The company relies significantly on short-term borrowings, with $1,249,765 classified as short-term borrowings as of September 30, 2024, which may not be available on favorable terms[87]. - The company allows a credit period of 6 months for customers, but delays in payment can occur, impacting cash flow and potentially leading to significant provisions for doubtful accounts[76]. Research, Development, and Innovation - The company plans to raise additional capital through future offerings to invest in research and development and build new facilities or acquire existing ones[46]. - The company continues to invest in research and development to innovate and adapt to industry changes, which is critical for future success[61]. - The company is focused on internal growth through product development, but faces challenges such as increased competition and market entry barriers[52]. - The company has expanded its product line with the incorporation of Huadi Songyang in June 2023, focusing on industrial steel pipe and tube products[179]. Regulatory and Compliance Issues - The company is subject to various environmental regulations, which can impose substantial costs and limitations on operations, potentially leading to unanticipated liabilities[79]. - Future compliance with evolving regulations may require additional expenditures and efforts, impacting the company's operations and financial position[91]. - The CAC Revised Measures require network platform operators with over one million users to apply for a cybersecurity review before seeking a foreign listing[94]. - The company has obtained all necessary permissions and approvals for its operations in compliance with PRC laws and regulations[98]. Corporate Governance and Market Position - The company is classified as a "controlled company" under Nasdaq rules, which may affect corporate governance and investor perception[64]. - Nasdaq has broad discretionary authority over the continued listing of Huadi International's securities, which could lead to delisting if the company fails to meet certain criteria[165]. - If Huadi International's securities are delisted, it could face significant consequences, including reduced liquidity and a determination that its ordinary shares are "penny stocks"[168]. - The company follows home country corporate governance practices from the Cayman Islands, which may provide less protection to investors compared to U.S. standards[161]. Market Strategy and Competitive Landscape - The company operates in a highly competitive market for stainless steel seamless pipes, which may impact its market share and pricing strategies[35]. - The company aims to sustain growth in earnings and cash flows by improving cost structure, expanding product offerings, and increasing market share[219]. - The company is focused on expanding market share through acquisitions and organic initiatives, including new product offerings and increased geographic coverage[220]. - The company prioritizes high-margin products and regularly evaluates its portfolio to respond to changing market conditions[221]. Employee and Management Information - As of September 30, 2024, the company has 355 employees and anticipates needing to hire more to support growth[50]. - The management team has decades of experience in the industrial steel pipe and tube industry, providing continuity in advancing strategic and growth goals[215]. Financial Performance and Trends - Revenue from production services to third entities decreased to $635,417, representing only 0.9% of total revenue in 2024[182]. - The company has experienced limited seasonal fluctuations in revenue, with lower sales typically recorded during the Lunar New Year[193]. - The company maintains a product pass rate of 99.85% through a comprehensive quality management system compliant with ISO 9001:2015[214]. - The company has received numerous industry awards, reflecting its innovative products and recognized reputation in the market[217].

Core Viewpoint - Huadi International Group Co., Ltd. reported a record revenue of $84.33 million for the fiscal year ended September 30, 2023, marking a 10.42% increase from the previous year, alongside a significant net income growth of 69.16% to $3.30 million [1][2][13]. Financial Performance - Revenue increased by 10.42% to $84.33 million in FY 2023 from $76.37 million in FY 2022, the highest in the company's history [2][4]. - Gross profit rose by 10.96% to $12.36 million, with a gross profit margin of 14.65%, slightly down from 14.91% in the previous year [2][8]. - Net income for FY 2023 was $3.30 million, or $0.23 per share, compared to $1.95 million, or $0.15 per share, in FY 2022 [2][13]. - Cash and cash equivalents increased to $20.19 million as of September 30, 2023, up from $13.20 million a year earlier [2][14]. Revenue Breakdown - Domestic sales in China accounted for $73.74 million, representing 87.45% of total sales, with a year-over-year increase of 13.8% [5][7]. - International sales decreased by 9.6%, contributing $10.59 million to total revenue [7]. Cost and Expenses - Selling, general and administrative expenses rose by 13.73% to $7.34 million, primarily due to bad debt provisions and increased freight costs [9]. - Research and development expenses increased by 9.43% to $2.55 million, reflecting the company's commitment to innovation [10]. - Interest expenses decreased significantly by 81.82% to $0.30 million, attributed to reduced bank loans [11]. Other Income - The company reported net other income of approximately $0.70 million, mainly from dividend income, government grants, and rental income [12]. Strategic Insights - The strategic decision to expand in the domestic market has been pivotal in driving sales growth, demonstrating the company's adaptability to market demands [3].

Financial Performance - For the fiscal year 2023, Huadi International generated total revenues of approximately $84.33 million, a 10.4% increase from $76.37 million in 2022[185]. - Gross profit for the year ended September 30, 2023, increased by approximately $1.22 million or 10.96%, totaling approximately $12.36 million, with a gross profit margin of 14.65%[313]. - Net income attributable to Huadi International Group Co., Ltd. for the year ended September 30, 2023, was approximately $3.26 million, compared to $1.92 million in 2022[305]. - Total comprehensive income for the year ended September 30, 2023, was approximately $1.98 million, a recovery from a loss of $1.84 million in 2022[305]. - Net income for the fiscal year ended September 30, 2023, was approximately $3.30 million, an increase of approximately 69.16% compared to $1.95 million in 2022[324]. - Cash and cash equivalents as of September 30, 2023, were $20,192,460, up from $13,195,999 in 2022, indicating strong liquidity[326]. - Net cash used in operating activities for the year ended September 30, 2023, was approximately $2.45 million, primarily due to adjustments in working capital[330]. - Accounts receivable as of September 30, 2023, were $22.63 million, an increase from $19.66 million in 2022, reflecting increased credit sales[337]. - Net cash provided by financing activities for the year ended September 30, 2023, was approximately $11.58 million, primarily from a stock offering that generated $23.01 million[334]. - Total operating expenses for the year ended September 30, 2023, were approximately $9.24 million, an increase from $8.78 million in 2022[306]. Revenue Sources - Steel piping products accounted for 98.6% of total revenues in 2023, with sales amounting to $83.11 million, up from $74.70 million in 2022[185]. - The top geographic market was China, contributing $73.74 million or 87.45% of total sales in 2023, followed by the USA at $7.15 million (8.47%) and India at $1.60 million (1.89%)[186]. - Approximately 12.55% of the company's revenues in 2023 were generated from international sales, highlighting reliance on favorable exchange rates for competitiveness[302]. - Domestic sales in China increased over 13.83% compared to the last fiscal year, while international sales revenue decreased by 9.62% to approximately $10.59 million[306]. Product and Market Development - Huadi International's new subsidiary, Huadi Songyang, was established in June 2023 to expand the product line of industrial steel pipe and tube products[182]. - The company has a diverse product range, producing over 3,000 distinct pipe and tube products, primarily for the automotive, oil and gas, and electric energy sectors[189]. - The company is focused on expanding market share through acquisitions and organic initiatives, including new product offerings and increased geographic coverage[222]. - The company is actively expanding its product offerings, as evidenced by the diverse range of registered trademarks related to steel and metal products[240]. Research and Development - The company invested $2,550,777 in research and development for new product development and process improvements in 2023, compared to $2,330,913 in 2022, representing an increase of approximately 9.4%[247]. - The research and development team consists of 75 employees from technical and production departments, focusing on in-house patent research[247]. - The company anticipates focusing its R&D efforts on improving existing products and developing new technology in the coming years[346]. - The company has a strong focus on quality control in its R&D processes, which is crucial for maintaining brand value[346]. Intellectual Property - The company has obtained 43 patents, enhancing its intellectual property portfolio and innovation capabilities[287]. - Huadi Steel holds a total of 8 invention patents and 35 utility patents, which protect new technical solutions and improvements[244]. - The patents include advanced technologies such as anti-corrosion treatments and high-strength materials, showcasing the company's commitment to quality and durability[244]. - Huadi Steel's utility patents are protected under PRC laws for a term of 10 years, providing a competitive edge in the market[244]. Corporate Governance - The company has established an audit committee, a compensation committee, and a nominating and corporate governance committee[373]. - The audit committee is responsible for ensuring proper procedures for the receipt and treatment of complaints regarding accounting and auditing matters[374]. - The company has adopted a whistleblower procedure to allow confidential and anonymous submission of concerns about questionable accounting or auditing matters[374]. - The board has implemented a written disclosure policy to ensure timely and accurate communication to the investing public[374]. Legal and Regulatory Compliance - The company is compliant with PRC laws and regulations, having obtained all necessary permissions and approvals for its operations[260]. - The PRC government has initiated regulatory actions affecting business operations, which may impact the company's future compliance requirements[254]. - The company is not subject to cybersecurity review under the CAC Revised Measures, as it does not hold personal information of over one million users[256]. Financial Management - The company has implemented cost and production efficiency initiatives, resulting in lower inventory levels and reduced customer lead times[211]. - The company has a rigorous pricing strategy to manage commodity price exposure and share transportation costs with customers[226]. - The company has long-term bank loans totaling $5,442,709, with $43,860 due within the next year[351]. - The interest rate on the long-term loans from Agricultural Bank is consistently 4.35%[344].

Part I - Company Information and Risk Factors [Key Information](index=7&type=section&id=Item%203.%20Key%20Information) Provides an overview of corporate structure, regulatory risks, selected financial data, and comprehensive business and share ownership risk factors [Overview of Corporate Structure and Regulatory Environment](index=7&type=section&id=Overview%20of%20Corporate%20Structure%20and%20Regulatory%20Environment) Details the company's Cayman Islands holding structure, PRC regulatory risks, auditor's PCAOB inspection status, and lack of dividend distributions - The company operates as a **Cayman Islands holding company** with subsidiaries in China and does not use a **Variable Interest Entity (VIE) structure**[15](index=15&type=chunk) - The company's US-based auditor, TPS Thayer, is subject to **PCAOB inspection**, mitigating **HFCAA delisting risk**[21](index=21&type=chunk) - Legal counsel advises no current requirement for **CSRC or CAC approval** for its US listing, given minimal data handling and no national security implications[25](index=25&type=chunk)[144](index=144&type=chunk) - No dividend distributions or asset transfers have occurred between the holding company and its subsidiaries to date; future PRC dividends are subject to **statutory reserve fund restrictions**[28](index=28&type=chunk)[32](index=32&type=chunk)[161](index=161&type=chunk) [Selected Financial Data](index=17&type=section&id=A.%20Selected%20Financial%20Data) Presents FY2022 revenues of $76.4 million and net income of $1.9 million, reflecting revenue growth but declining net income and EPS from prior years Selected Consolidated Financial Data (in USD) | Financial Metric | FY 2022 (USD) | FY 2021 (USD) | FY 2020 (USD) | | :--- | :--- | :--- | :--- | | **Revenue** | $76,366,148 | $70,246,611 | $59,137,278 | | **Gross Profit** | $11,135,627 | $11,319,936 | $10,664,217 | | **Operating Income** | $2,352,541 | $2,577,979 | $4,605,057 | | **Net Income** | $1,948,054 | $2,557,045 | $3,356,299 | | **EPS (basic and diluted)** | $0.15 | $0.21 | $0.34 | | **Total Assets** | $84,636,527 | $100,245,863 | $69,123,370 | | **Total Liabilities** | $35,002,586 | $48,767,449 | $43,334,670 | | **Total Shareholders' Equity** | $49,633,941 | $51,478,414 | $25,788,700 | [Risk Factors](index=18&type=section&id=D.%20Risk%20Factors) Highlights significant risks from China's macroeconomic policies, US-China trade tensions, COVID-19, PRC regulatory uncertainties, and reduced shareholder protections - **Business Risks:** The business is exposed to **China's macro-control policies** on the steel industry, economic slowdowns, **US tariffs**, and the ongoing effects of the **COVID-19 pandemic** which caused operational delays in **FY2022**[59](index=59&type=chunk)[61](index=61&type=chunk)[98](index=98&type=chunk) - **China-Related Risks:** The PRC government exerts **substantial influence** over business activities. The company faces **uncertainties regarding future regulations** on overseas listings, **currency conversion controls**, and **restrictions on dividend payments** from its PRC subsidiaries[132](index=132&type=chunk)[142](index=142&type=chunk)[170](index=170&type=chunk) - **Shareholder Risks:** The company is a **'controlled company'** due to the Wang family's majority ownership, an **'emerging growth company'** under the JOBS Act, and a **'foreign private issuer'**. These statuses allow for **exemptions from certain US corporate governance and reporting standards**, potentially offering **less protection to investors**[105](index=105&type=chunk)[216](index=216&type=chunk)[218](index=218&type=chunk) - **HFCAA Risk:** While the company's **US-based auditor** is subject to **PCAOB inspection**, the report acknowledges the broader risks of the **Holding Foreign Companies Accountable Act**, which could lead to **delisting** if inspections were hindered for **two consecutive years**[21](index=21&type=chunk)[192](index=192&type=chunk)[198](index=198&type=chunk) [Information on the Company](index=56&type=section&id=Item%204.%20Information%20on%20the%20Company) Describes the company's business as a leading Chinese stainless steel pipe manufacturer, covering corporate structure, products, markets, suppliers, and PRC regulations [Business Overview and Corporate Structure](index=56&type=section&id=Business%20Overview%20and%20Corporate%20Structure) Outlines Huadi International Group's business as a leading stainless steel pipe manufacturer, detailing its multi-layered Cayman Islands holding structure and recent financial activities - The company's **main business** is the development, manufacturing, and sale of **stainless steel seamless pipes, tubes, and bars**[236](index=236&type=chunk) - The corporate structure is a **multi-layered holding company**: **Huadi International (Cayman)** owns **Yongqiang Tuoxing (BVI)**, which owns **HK Beach (Hong Kong)**, which owns **Wenzhou Hongshun (PRC)**, which in turn owns 99% of the operating entity, **Huadi Steel (PRC)**[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - In **November 2022**, the company closed a registered direct offering, selling 1,000,000 ordinary shares for gross proceeds of approximately **$25 million**[240](index=240&type=chunk) [Products and Markets](index=58&type=section&id=Products%20and%20Markets) Focuses on the company's 3,000+ steel pipe products using CDS technique, serving Oil & Gas, Electric Energy, and Automotive markets, with most revenue from China - The company manufactures over **3,000 types of pipe and tube products**, specializing in the **Cold Drawn Seamless (CDS) technique** for applications requiring high precision and strength[247](index=247&type=chunk)[248](index=248&type=chunk) - Primary end-markets for its products are **Oil & Gas**, **Electric Energy**, **Automotive**, and other industrial applications like pharmaceutical and food industries[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) Revenue by Geographic Area (FY 2022) | Region | Sales (USD) | % of Total Sales | | :--- | :--- | :--- | | China | $64,787,186 | 84.69% | | US | $7,628,332 | 9.97% | | Taiwan | $1,296,863 | 1.70% | | Australia | $1,191,512 | 1.56% | | Marshall Islands | $730,039 | 0.95% | | Other | $868,364 | 1.13% | [Suppliers, R&D, and Intellectual Property](index=61&type=section&id=Suppliers,%20R%26D,%20and%20Intellectual%20Property) Discusses reliance on stainless steel billets, significant supplier concentration, R&D expenses, and intellectual property protection through patents and trademarks - In **FY2022**, the company had **significant supplier concentration**, with **two suppliers** accounting for **26.71%** and **18.06%** of total purchases, respectively[263](index=263&type=chunk)[703](index=703&type=chunk) - The company holds **4 invention patents** and **20 utility patents** in China to protect its technology[299](index=299&type=chunk) - **R&D expenses totaled** **$2,330,913** in **FY2022**, an increase from **$2,057,547** in **FY2021**[301](index=301&type=chunk)[388](index=388&type=chunk) [Legal Proceedings and Regulations](index=72&type=section&id=Legal%20Proceedings%20and%20Regulations) Covers ongoing legal disputes with Tangshan Sanyou Chemical Co., Ltd. and outlines the extensive PRC regulatory framework governing the company's operations - The company settled a legal case with Tangshan Sanyou Chemical Co., Ltd. in **August 2022**, agreeing to pay **RMB 631,791**[303](index=303&type=chunk)[444](index=444&type=chunk) - A separate lawsuit filed by Huadi Group against Tangshan Sanyou Chemical Co., Ltd. for non-payment is **currently on appeal** after an initial judgment in favor of Tangshan Sanyou[305](index=305&type=chunk)[306](index=306&type=chunk)[446](index=446&type=chunk) [Operating and Financial Review and Prospects (MD&A)](index=81&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) Provides management's discussion and analysis of FY2022 financial performance, highlighting revenue growth, net income decline due to costs, and liquidity from cash and credit facilities [Results of Operations](index=83&type=section&id=Results%20of%20Operations) Analyzes FY2022 results, showing 8.7% revenue growth to $76.4 million driven by higher prices and domestic sales, but a gross profit margin decline and 23.8% net income decrease Consolidated Results of Operations (in USD) | Metric | FY 2022 (USD) | FY 2021 (USD) | FY 2020 (USD) | | :--- | :--- | :--- | :--- | | **Total Revenue** | $76,366,148 | $70,246,611 | $59,137,278 | | **Gross Profit** | $11,135,627 | $11,319,936 | $10,664,217 | | **Operating Income** | $2,352,541 | $2,577,979 | $4,605,057 | | **Net Income** | $1,948,054 | $2,557,045 | $3,356,299 | - **FY2022 revenue growth** was driven by increased average selling prices to offset rising raw material costs and a **21.94%** increase in **domestic sales**, while **international sales** decreased by **31.55%**[353](index=353&type=chunk) - **Gross profit margin decreased** to **14.91%** in **FY2022** from **16.11%** in **FY2021**, mainly due to increased **raw material prices** which drove up the cost of sales[358](index=358&type=chunk) [Liquidity and Capital Resources](index=87&type=section&id=Liquidity%20and%20Capital%20Resources) Outlines the company's liquidity with $13.2 million cash and $8.0 million net cash from operations, supported by $21.2 million in bank loans secured by assets and shareholder guarantees - The company held **$13,195,999** in **cash and cash equivalents** as of **September 30, 2022**[366](index=366&type=chunk) Summary of Cash Flows (in USD) | Cash Flow Activity | FY 2022 (USD) | FY 2021 (USD) | FY 2020 (USD) | | :--- | :--- | :--- | :--- | | **Operating Activities** | $8,027,856 | $(5,648,806) | $3,204,290 | | **Investing Activities** | $(206,175) | $(897,254) | $59,786 | | **Financing Activities** | $(9,744,857) | $21,276,173 | $(4,689,306) | Contractual Obligations as of Sep 30, 2022 (in USD) | Contractual Obligations | Total (USD) | Payment Due < 1 year (USD) | Payment Due 1-3 years (USD) | | :--- | :--- | :--- | :--- | | Short-term bank loans | $11,888,662 | $11,888,662 | - | | Long-term bank loans | $9,300,625 | - | $9,300,625 | | **Total** | **$21,189,287** | **$11,888,662** | **$9,300,625** | [Directors, Senior Management and Employees](index=94&type=section&id=Item%206.%20Directors,%20Senior%20Management%20and%20Employees) Introduces the leadership team, compensation, board practices, committee structures, and employee count, noting the board consists of 5 directors, mostly independent - The leadership team includes founder **Di Wang** as Chairman and **Huisen Wang** as CEO. **Jianping Xiang** was appointed as the **new CFO** in **December 2022**[397](index=397&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) - As of **September 30, 2022**, the company employed **360 people**, with the largest departments being **Production (35.3%)** and **Technical (20.8%)**[286](index=286&type=chunk)[287](index=287&type=chunk)[435](index=435&type=chunk) - The **Board of Directors has established Audit, Compensation, and Nomination committees**, each composed of **three independent directors**[416](index=416&type=chunk) [Major Shareholders and Related Party Transactions](index=103&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) Identifies major shareholders, including Chairman Di Wang and Director Jueqin Wang, who collectively control the company, and details significant related party transactions in FY2022 - The company is a **controlled entity**, with Chairman **Di Wang** beneficially owning **58.54%** and Director **Jueqin Wang** beneficially owning **11.69%** of the ordinary shares[438](index=438&type=chunk) Key Related Party Transactions (FY 2022) | Related Party | Transaction Type | Amount (USD) | | :--- | :--- | :--- | | Taizhou Huadi Industrial Ltd. | Raw Material Purchases | $4,649,636 | | Taizhou Huadi Industrial Ltd. | Product Sales | $1,990,329 | Related Party Balances as of Sep 30, 2022 | Related Party | Balance Type | Amount (USD) | | :--- | :--- | :--- | | Taizhou Huadi Industrial Ltd. | Accounts Payable | $2,439,105 | | Taizhou Huadi Material Technology Co. | Advance from Customer | $395,498 | | Di Wang | Due to Related Party | $(281,156) | | Jueqin Wang | Due to Related Party | $(325,830) | [Additional Information](index=107&type=section&id=Item%2010.%20Additional%20Information) Provides details on corporate governance under Cayman Islands law, PRC foreign exchange regulations restricting capital flows, and the preferential 15% EIT rate for its main operating subsidiary - As a **Cayman Islands exempted company**, **shareholder rights and corporate law differ** from those in the U.S. For example, **derivative actions by minority shareholders are more limited**, and the process for mergers and acquisitions is governed by Cayman law[486](index=486&type=chunk)[487](index=487&type=chunk)[494](index=494&type=chunk) - **PRC foreign exchange regulations** impose **controls on currency conversion**, particularly for **capital account items**, which could affect the company's ability to transfer funds or pay dividends out of China[511](index=511&type=chunk) - The company's **main PRC subsidiary, Huadi Steel**, is recognized as a **High and New Technology Enterprise (HNTE)** and is eligible for a **reduced Enterprise Income Tax (EIT) rate of 15%**, compared to the **standard 25%**[523](index=523&type=chunk)[720](index=720&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=129&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Addresses market risks including foreign exchange risk from RMB-USD translation, commodity price risk from steel fluctuations, and interest rate risk, noting no use of derivative hedging instruments - The company's **primary market risks** are **foreign exchange risk** (RMB to USD), **commodity price risk** for steel, and **interest rate risk** on its **variable-rate loans**[557](index=557&type=chunk)[665](index=665&type=chunk) - All revenues and most expenses are in RMB, creating **translation risk** when reporting in USD. The company does not use **hedging instruments** for foreign exchange exposure[558](index=558&type=chunk) [Controls and Procedures](index=130&type=section&id=Item%2015.%20Controls%20and%20Procedures) Concludes that disclosure controls and procedures were ineffective as of September 30, 2022, due to a material weakness from insufficient U.S. GAAP accounting and finance personnel - Management concluded that as of September 30, 2022, **disclosure controls and procedures were ineffective** due to a **material weakness in internal control over financial reporting**[565](index=565&type=chunk) - The identified material weakness is the **lack of sufficient accounting and finance personnel** with experience in **U.S. GAAP**[566](index=566&type=chunk) Part III - Financial Statements and Exhibits [Financial Statements](index=135&type=section&id=Item%2018.%20Financial%20Statements) Presents audited consolidated financial statements for FY2022, 2021, and 2020, prepared under U.S. GAAP, including independent auditors' reports, balance sheets, income statements, cash flows, and detailed notes [Notes to Consolidated Financial Statements](index=146&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed information on corporate structure, significant accounting policies, asset and liability breakdowns, extensive related party transactions, and shareholders' equity changes including the 2021 IPO and prior reverse stock split - The company **recognizes revenue from product sales** when control is transferred to the customer, which typically occurs at delivery, following the principles of **ASC 606**[648](index=648&type=chunk)[650](index=650&type=chunk) - In January 2021, the company completed its IPO of **3,125,000 shares** at **$8.00 per share**, raising gross proceeds of approximately **$25 million**[716](index=716&type=chunk) - The company's main operating subsidiary, Huadi Steel, is eligible for a **preferential 15% EIT rate** due to its **High and New Technology Enterprise (HNTE) status**, which is valid through **fiscal year 2022**[720](index=720&type=chunk)

Financial Performance - Revenue for the fiscal year ended September 30, 2021, was $70,246,611, an increase of 18% compared to $59,137,278 in 2020[15] - Gross profit for 2021 was $11,319,936, representing a gross margin of approximately 16.1%, compared to $10,664,217 in 2020[15] - Net income attributable to Huadi International Group Co., Ltd. for 2021 was $2,531,475, a decrease of 24% from $3,322,736 in 2020[15] - Total assets increased to $100,245,863 in 2021, up from $69,123,370 in 2020, reflecting a growth of 45%[16] - Total liabilities rose to $48,767,449 in 2021, compared to $43,334,670 in 2020, indicating a 13% increase[16] - Total shareholders' equity significantly increased to $51,478,414 in 2021, up from $25,788,700 in 2020, marking a growth of 99%[16] Risks and Challenges - The company faces risks from the Chinese government's macro-control policies, which could adversely affect product demand[20] - Uncertainties in Chinese economic growth may lead to decreased demand for the company's products, impacting overall sales[21] - The company is subject to import tariffs and trade barriers that could negatively affect its competitiveness in international markets, particularly the U.S.[22] - The ongoing COVID-19 pandemic has led to temporary closures and operational slowdowns, impacting financial performance[57] - Supply chain disruptions and local protectionism in China pose risks to the company's ability to produce and deliver products effectively[40] - The company faces potential conflicts of interest due to transactions with related parties, which could adversely affect business operations[37] Customer and Supplier Relationships - The company had one major customer for the fiscal year ended September 30, 2021, compared to none in 2020, indicating a potential risk in revenue stability[34] - The company had three major suppliers for both fiscal years 2021 and 2020, with purchases from Taizhou Huadi Industrial Ltd. amounting to $6,376,512 in 2021 and $14,521,129 in 2020[35] Capital and Investment - The company plans to raise additional capital through future offerings to invest in research and development and expand production facilities[41] - Significant investments are being made in infrastructure and research and development to enhance existing products and introduce new stainless steel seamless pipe products[62] Employee and Operational Insights - The company has 382 employees as of the date of the annual report, indicating a need for continued recruitment and training to support growth[45] - The company allows a credit period of 6 months to its customers, but delays in payment can occur, impacting cash flow[77] - The company has recorded no bad debt write-offs during the years ended September 30, 2021, and 2020[77] Regulatory and Compliance Issues - Environmental regulations impose substantial costs and limitations on operations, with potential liabilities for noncompliance[80] - The company is subject to various national and local environmental laws in China, which can restrict operations and expose it to penalties[80] - The Chinese government exerts substantial influence over business operations, and changes in laws and regulations could materially affect the company's ability to operate and list on U.S. exchanges[92] - The company must monitor regulatory developments in China, particularly regarding approvals from authorities like the CSRC and CAC, which could impact its operations[105] Currency and Financial Risks - Fluctuations in exchange rates between the RMB and the U.S. dollar could materially impact the company's results of operations and the value of its shares[122] - The RMB has depreciated significantly against the U.S. dollar, which may adversely affect the company's revenues and financial position[124] - The PRC government imposes controls on the convertibility of RMB into foreign currencies, affecting the company's ability to remit dividends outside of China[128] Corporate Structure and Governance - The company is classified as a "controlled company" under Nasdaq rules, which may affect its corporate governance structure[65] - The company may face challenges in protecting shareholder interests due to its incorporation under Cayman Islands law, which may limit legal recourse in U.S. courts[178] Market Position and Product Development - Huadi International Group Co., Ltd. is a leading manufacturer of industrial stainless steel seamless pipes and tubes, with extensive distribution across over 20 provinces in China and exports to 20 countries and regions[194] - The core product "HuaGang" stainless steel seamless pipe has been recognized as a well-known trademark by the State Administration for Industry and Commerce of China[195] - The company focuses on new product development, manufacturing, marketing, and sales of stainless steel products, contributing to sustainable development[196] Future Outlook - The company anticipates that the impact of the pandemic will decrease in the 2022 fiscal year as vaccination efforts continue[59] - Huadi International intends to retain future earnings to finance operations and expansion, with no plans to pay dividends in the foreseeable future[188]

Financial Position - As of September 30, 2020, Huadi International Group Co., Ltd. had total assets of $69,123,370, a slight increase from $68,773,494 in 2019, representing a growth of approximately 0.51%[17] - The company reported total liabilities of $43,334,670 as of September 30, 2020, down from $47,566,394 in 2019, indicating a reduction of about 8.3%[17] - Shareholders' equity increased to $25,788,700 in 2020 from $21,207,100 in 2019, reflecting a growth of approximately 21.5%[17] - The accumulated deficit decreased significantly from $(3,481,925) in 2019 to $(159,189) in 2020, showing an improvement in financial health[17] - Cash and cash equivalents were reported at $796,794, down from $1,057,992 in 2019, a decline of about 24.6%[17] - Accounts receivable decreased slightly from $14,001,714 in 2019 to $13,618,697 in 2020, a reduction of approximately 2.7%[17] - The company had inventories valued at $20,837,594 as of September 30, 2020, an increase from $17,845,405 in 2019, representing a growth of about 16.7%[17] Revenue and Profitability - Total sales for 2020 were $57,767,081, a decrease of 12% from $65,518,316 in 2019[20] - Gross profit for 2020 was $10,664,217, down 27% from $14,622,672 in 2019[20] - Operating income decreased to $4,460,585 in 2020, a decline of 47% compared to $8,378,504 in 2019[20] - Net income for 2020 was $3,356,299, representing a 38% decrease from $5,446,487 in 2019[20] - Total comprehensive income for 2020 was $4,581,600, slightly down from $4,588,608 in 2019[20] - Total revenue decreased by approximately $6.4 million in fiscal year 2020 compared to fiscal year 2019, with international sales dropping from $17.9 million to $11.9 million, a 34% reduction[43] Expenses and Costs - Research and development expenses increased to $2,120,649 in 2020, up 19% from $1,777,110 in 2019[20] - Total operating expenses for 2020 were $6,203,632, a marginal decrease from $6,244,168 in 2019[20] - Advertising costs for the years ended September 30 were $104,933 in 2020, $147,363 in 2019, and $105,734 in 2018, indicating a decrease of 29% from 2019 to 2020[79] Cash Flow and Financing - Net cash provided by operating activities increased to $3,204,290 in 2020 from $2,346,607 in 2019, representing a 36.5% increase[29] - Cash and cash equivalents at the end of the year decreased to $1,705,204 from $3,016,672 in 2019, a decline of 43.4%[29] - Purchases of property, plant, and equipment amounted to $664,996 in 2020, down from $912,702 in 2019[29] - Proceeds from short-term borrowings were $38,620,077 in 2020, slightly down from $39,715,044 in 2019[29] - The company was able to repay all debt and obligations during the year ended September 30, 2020, without utilizing any payment deferral or forbearance[46] Impact of COVID-19 - The workforce remained stable throughout fiscal year 2020, but increased operational costs were incurred due to safety measures related to COVID-19[45] - The company experienced supply chain disruptions during the COVID-19 pandemic, leading to increased lead times and purchase prices for raw materials[45] - The impact of COVID-19 resulted in a temporary closure of offices and production facilities, with operations fully resuming by February 18, 2020[43] Shareholder Information - The Company is authorized to issue 250,000,000 ordinary shares, with 10,000,000 shares currently issued and outstanding as of September 30, 2020[137] - A reverse stock split was approved on October 9, 2020, reducing the number of authorized shares from 500,000,000 to 250,000,000[151] - The company completed an IPO on January 26, 2021, raising approximately $25 million from the sale of 3,125,000 shares at $8.00 per share[153] Taxation and Compliance - Current income tax expense for 2020 was $218,949, down 69.0% from $709,027 in 2019[144] - Total income tax expense for 2020 was $218,949, compared to $1,005,190 in 2019, reflecting a significant reduction[144] - The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the fiscal years ended September 30, 2020, and 2019[141] Investments and Assets - The carrying value of long-term investments was $13,449,305 and $12,775,494 as of September 30, 2020, and 2019, respectively[64] - Long-term investments totaled $13,449,305 as of September 30, 2020, with significant holdings in Huashang Micro Finance Co. and Longwan Rural Commercial Bank[107] - The Company invested RMB 44,982,000 ($7,172,207) to acquire a 2.1% stake in Longwan Rural Commercial Bank (LRCB) in 2012, receiving dividend income of RMB 3,087,000 ($440,647) in 2020, down from RMB 3,307,500 ($481,070) in 2019[111] Customer and Supplier Relationships - The Company had no significant customers in 2020, but two customers accounted for 26.31% of total accounts receivable[120] - In the year ended September 30, 2020, three suppliers accounted for 32.05%, 16.60%, and 11.16% of total purchases, with these suppliers combined representing 63.47% of total accounts payable[122] - The Company purchased $14,521,129 in raw materials from Taizhou Huadi during the year ended September 30, 2020, with an outstanding balance of $5,342,512 as of the same date[126]